Oatly raised JPMorgan on an attractive valuation, but analysts say the company could lose sales expectations.

Oatly Group AB moved from neutral to overweight in JPMorgan based on the company’s earning potential, which analysts say is not accurately reflected in the company’s valuation.

JPMorgan kept its price target of $ 21, which is more than 40% higher than current levels.


The stock traded below $ 15 on Friday after falling more than a third, down 37.3%, in the past three months, while the benchmark S&P 500 index SPX it has risen 1.9% in the period.

The company went public in May 20th after its initial public offering at a price of $ 17 per share.

Read: Weight gain during COVID-19, especially among younger consumers, is driving changes in the way Americans eat and dress

“Yes, there is a decent chance that sales will hit a few million dollars below consensus this quarter, which is never a good look for a new public growth story,” the analysts wrote. “But we believe that the failure would not be driven by reduced demand, but rather, by the side of the sale that does not pay attention to the tone of the management on the cadence of sales.”

The FactSet consensus is for third quarter sales of $ 186.9 million and a loss of 10 cents per share.

“We also believe that the risk of a third quarter revenue loss is increasingly based on expectations on the buy side,” JPMorgan said.

“Last, and perhaps most importantly, we expect the company to reiterate its annual revenue target when it releases the third quarter; If it does, the implication will be that the 4Q top line estimates should upload. Therefore, we do not see the next 3Q21 earnings release / guide as an absolute negative; in fact, the positive impact of the guidance could theoretically more than offset a modest failure in the third quarter. ”

Watch: JPMorgan downgrades Conagra and upgrades Hormel as inflation fears should keep investors from many large food companies on the sidelines

Although JPMorgan is optimistic about Oatly, it is more pessimistic about other food producers. Analysts downgraded Conagra Brands Inc.

and updated Hormel Foods Corp.
+ 0.85%
put several large-cap food producers in neutral.

In Conagra’s downgrade note, analysts explained that “they believe that strong revenue growth can overcome a number of sins, including the main one in 2021: cost inflation.”

Analysts believe that Oatly is well positioned to handle this challenge.

“We also hear concerns about inflation, particularly oats, but we remind readers that Oatly can set a lot of prices well in advance,” says JPMorgan.

“We wouldn’t be surprised if you bought most of your oat needs in 2022. Of course, oats are only a small part of Oatly’s total. [cost of goods sold] basket, anyway, and we think this company has great pricing power if need be. “


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